Best Company Types For Foreigners and Non-UK Residents

Ryan Patrick

• 11 min read
Best Company Types For Foreigners and Non-UK Residents

Starting your own business is an adventure like no other, and there’s no better place to do it than the UK. With its vibrant economy, cultural diversity and booming business scene, the UK is an entrepreneur’s dream.  As a foreigner or non-resident, when deciding to start a business in the United Kingdom, it’s important to consider the various company types available.

In this article, we will explore the most common types of companies that are open to foreigners in the UK, to assist you in selecting the right course of action for your company, we will also go over the advantages and disadvantages of each type of company. So, if you’re ready to take your business to the UK, let’s explore the different company types and find the right one for you.

What Are the Different Types of Businesses in the UK?

There are several business types in the UK, and you must choose the one that best fits your company’s structure. You can choose from the following:

  • Sole Proprietorship
  • A Partnership Company
  • A Limited Liability Partnership company – which is also known as LLP
  • A Limited company

Your choice of legal business structure will affect several features of your company, such as taxation, personal liability, and the volume of administrative work you have to do.

What is a Sole Proprietorship?

In the UK, this is the simplest type of company being operated. You have personal responsibility for any losses your business incurs, and there is no distinction between the business and its owner. To become a self-employed person in the UK, you must register with Her Majesty’s Revenue and Customs when your firm earns £1,000 annually. In addition, you have to file an income tax self-assessment return with HMRC and keep accounting records.

If you are a foreigner thinking of setting up your sole proprietorship in the UK, you may legally require certain visa and residence permits to start the business. Once you have completed all the legal formalities and collected the documents, you need to proceed with your registration process.

Documents Required for Registering Your Sole Proprietor Business in the UK

In addition to providing conventional identification evidence and business facts such as the company name and address, you must maintain all financial records and other complex documentation.

Here is a list of documents you need to be ready to register your sole proprietorship in the UK. ‍

  • Personal Income
  • Business Income
  • Business sales
  • Bank Statements
  • Cheque stubs
  • Bank slips and receipts

As a sole proprietor, you have the following duties and responsibilities:

  • Keep track of your income and expenses
  • Every year, file a self-assessment tax return
  • Pay your income tax
  • Pay for national insurance classes 2 and 4

VAT for Sole Proprietorship

In accordance with UK legislation, a sole entrepreneur must pay income tax on their profits, which can be done by filing an annual self-assessment tax return. If the revenue of your single proprietorship exceeds £85,000, you are required to pay VAT.

Advantages of Owning a Sole Proprietorship

  • Compared to other corporate entity types, record keeping is comparatively simpler and costs are lower.
  • In the UK, sole proprietorships are free to maintain total control over the course and operations of their business.
  • Because they have more control over pricing, sourcing, and customer satisfaction, sole traders are more likely to build strong relationships with their clients.

Disadvantages of Owning a Sole Proprietorship

  • When operating a sole proprietorship, your personal assets are not shielded since you bear full responsibility for any debt you incur.

What is A Partnership Company?

For two or more people who would like to manage a business together, a partnership firm is also an excellent approach for foreigners to establish a company in the UK. With the exception of having one or more business partners, the responsibilities of a partnership business structure are identical to those of a sole proprietorship. In order to establish a partnership, you need to have a legal agreement that specifies how profits, losses, liabilities, and ownership will be divided.

Types of Partnerships

There are three types of partnerships:

  • General Partnership: The partners split profits, liabilities, and management duties equally, or in a different manner specified in the agreement. In a general partnership, every partner acts as the other partners’ representative in business-related matters and can bind the other partners to any agreement. Every partner bears joint responsibility for the contractual debts and liabilities of the company that they incurred during their partnership. Additionally, they have joint and multiple liability for any damages brought about by a partner’s carelessness or wrongdoing.
  • Limited Partnership: This kind of partnership, which is more complex than the general version and is more appropriate for short-term projects, specifies that each partner’s contribution and responsibility are determined by the proportion of their investments.
  • Joint Venture: Essentially, a joint venture is a brief general collaboration that lasts only for a single project.

Advantages of A Partnership

Now that you have a better idea of how a partnership works, let’s now discuss some of the benefits of starting up one of these types of businesses.

  • More Capital: It goes without saying that starting a business requires a sizable sum of money. The partnership benefits from having many wallets, which is one of the drawbacks of a sole proprietorship, which is one individual in charge of a business. A company’s chances of growing and expanding in the future are better when more money is invested in it from the beginning. Greater funding at the beginning of the company is like a present that keeps on giving because, should the well-funded business turn a profit later on, the owners will benefit from even more money now.
  • Making Choices: Getting other people to contribute ideas about how the firm should operate can be an excellent way to find a great idea that one person alone might not have thought of. This can also be a source of inspiration.
  • Flexibility and Ease: Partnerships are naturally flexible in a variety of ways. To begin with, they are typically considerably simpler to launch and run than other kinds of enterprises once they are up and running.
  • Shared Responsibility: Although there could occasionally be snags in the decision-making process, the owners’ ability to assign managerial duties in a variety of ways is a far more advantageous feature. They might decide to divide the work evenly or that it would be better to assign tasks based on talents, letting people focus on their areas of expertise. This managing up course will teach those in positions of authority how to interact with both subordinates and other managers.

Disadvantages of A Partnership

  • Liability: Also referred to as unlimited liability, each participant in a partnership bears both individual and shared responsibility for the debts of the business. Although some people might find this problematic, they might want to think about forming a limited liability partnership.
  • Taxes: Every partner in a corporation is required to file an annual tax return and pay taxes on their respective earnings. In the event that the business achieves success and the partners’ annual income surpasses a specific threshold, they will be subject to increased taxation.
  • Arguments: Possibly the most common cause of conflict in a partnership, arguments can result from a wide range of possible problems. These disagreements may cover a wide variety of significant topics, but even the smallest disagreement has the potential to destroy the partnerships and jeopardize the company’s integrity as a whole, not to mention any personal connections
  • Limited Lifespan: While this is not always the case, a partnership typically lasts until one of the parties dies or withdraws their stake.

What is a Limited Liability Partnership (LLP)?

The members of a limited liability partnership are solely accountable for the money they invest in the partnership as well as any personal guarantees; the partnership itself is a distinct legal entity. Only profitable companies are permitted to use the partnership, which is incorporated at Companies House.

In addition to keeping a membership list, partners must supply the business with a registered address. The maximum number of partners that can be incorporated is not limited; however, at least two members, who can be either persons or limited businesses, must be present. Another option is to establish an LLP with a single person and a dormant company.

How can I set up a limited liability partnership?

If you’re thinking of setting up an LLP, here are a few factors to consider:

  • Drafting an LLP contract

The operation of the company, including profit-sharing plans, dispute resolution procedures, and member responsibilities, should be outlined in the limited liability partnership agreement.

  • Incorporation

You must select a name for your company that is distinct from any existing firm. The incorporation paperwork must contain the following information in addition to a registered address:

  • Details of the designated members
  • Details of other members
  • The partnership’s main business activities
  • A statement of compliance
  • A register of People with Significant Control (PSC)

Advantages of forming a limited liability partnership

If you’re considering forming a limited liability partnership, there are several benefits to the arrangement, such as:

  • Protection of private property through limited liability
  • Various membership levels – you may select the extent of your involvement in the firm – flexibility in administration and profit distribution
  • Members can be companies as well as individuals
  • The partnership can enter into contracts under its own name

Disadvantages of setting up an LLP?

  • The public can inspect the firm’s accounts and financial situation
  • Establishing an LLP can be more expensive than forming a standard partnership.

Form Your Company with Incorpuk

Get in touch with our professionals at Incorpuk if you’re thinking about forming a limited liability partnership and want more advice on the procedure. We will assist you in determining whether this is the ideal business structure for your needs and offer trustworthy, unbiased advice.

What is a Private Limited company?

In the UK, a limited company is one of the most widely used legal forms for companies of any size or form. This is because of the numerous financial and professional advantages it provides, which greatly outweigh those enjoyed by independent contractors or sole proprietors.

A limited business and its owners are two different legal entities (shareholders). In contrast to a sole proprietorship, wherein you bear full responsibility for whatever debt your company accrues, a limited company’s shareholders’ liability is capped at the value of their shares.

In terms of taxes, shareholders must pay income tax on any dividends they receive, and limited companies must pay corporation tax on their profits.

Advantages of setting up a Private Limited company

  • Reducing individual liability: The primary advantage of establishing your own business is limited liability protection. Put simply, your personal assets will be safe in the event that your company experiences difficulties. This is as a result of the limited company’s status as a distinct legal entity.
  • The status of professionalism: Beginning business as a limited company will significantly enhance your reputation and standing in the industry. Although your company’s operations, ownership structure, and internal management may remain the same as they were when you operated as a sole proprietor, businesses are seen more favourably and make a better impression.
  • Lending and investment prospects: Since companies can have more than one owner, selling pieces of the company—referred to as “shares”—to potential new investors is one way to acquire extra funds. Organizations typically have access to more funding options than sole proprietors do, and some banks will only make loans to organizations that are officially registered.
  • Planning and efficiency in taxes: In the UK, single traders pay 20–45% income tax on their profits, while limited corporations pay 19–25% corporation tax. There is more room for tax planning flexibility with these lower rates for businesses.

Disadvantages of setting up a Private Limited company

  • Accounting requirements are more complex and time-consuming
  • Certain limitations apply to company names
  • If you are a disqualified director or an undischarged bankrupt, you cannot form a limited business.
  • Information about individuals and companies will be made public.

What You Should Know Before Starting a Business in the UK as a Foreigner

Being a foreign entrepreneur in the UK might change your life, but you need to be ready. Depending on your nationality, you might require a visa to enter the UK.

Before you get started, you’ll need to consider the following:

  • Legal structure: You must choose the right legal framework for your company. One option is to work for yourself as a sole trader, which entails being self-employed. You bear complete responsibility for managing your firm as a single trader, including paying national insurance and income tax. As an alternative, you might like to launch a limited corporation. Limited liability protection refers to the fact that, as a limited company, your business and yourself are regarded as distinct legal entities and that, as a result, the business bears all liability. Operating as a partnership is an additional choice, in which several people agree in a partnership agreement on how the business will be divided amongst them. In a partnership, all partners bear financial and debt responsibility for the company.
  • Visa: As previously indicated, to launch a business in the UK, make sure you have the appropriate work permits and visa.
  • Taxes: Become familiar with the corporate tax regulations in the UK. Learn about how corporate tax is computed, for instance, since it is determined by the annual profit of your business. As of April 2023, the company tax rate is 25%.
  • Employment laws: Do you need to hire some staff members to help launch your business? Ensure you are familiar with the workings of UK employment regulations, including those of minimum wage, holiday pay, working hours, and redundancy.

The Benefits of Starting a Business in the UK as a Non-UK Citizen

The UK is the best option if you’re looking to launch a business in a nation with strong international connections and a thriving business environment.

Here are just some of the benefits of starting your own business in the UK:

  • Assistance when required: Although beginning your own business may seem overwhelming, you are not alone as you can get assistance. Many helpful resources may be found online, such as the UK Government website, which has all the information you need to start a business.
  • Robust economy: With a population of more than 67 million, there are plenty of prospective clients in the UK! With a gross domestic product of 2.23 trillion pounds in 2022, the British economy ranked fifth in the world.
  • Skilled labour: Establishing a presence in the UK will give you access to specialized labor that will be necessary to grow your company.
  • Financial hub: London is the second-largest financial center in the world and is home to the Bank of England and the London Stock Exchange (LSE). There’s no better place to make your mark in the business world if you’re looking to do so because of its reputation and growing commercial environment. Sometimes a business operating in a different sub-category may be registered under one of the above structures, such as:
  • A franchise: This is a well-known business that already exists. If you possess a franchise, you have the authority to utilize the business plan of the established company and conduct business under its name.
  • A social enterprise: is a company that strives to improve society or the environment. For these companies to stay committed to achieving social or environmental objectives, they need to be transparent about the money they reinvest.
  • A freelancer: This is a person who offers a service (like writing or photography) using their knowledge and abilities. The way this kind of self-employment operates is by finding customers to provide services to.
  • A charitable firm: A charity’s mission is to further society’s welfare, much like that of a social enterprise. It is distinct, though, in that donations account for all of its earnings.

Every business has its standards and guidelines. Before you get started, you might want to get expert counsel from us.

Conclusion

Foreigners and non-residents wishing to establish a company in the UK have access to various company types, each with unique benefits and drawbacks. Before choosing a company type, it is critical to thoroughly evaluate your company’s needs as well as the tax and legal ramifications of each option. You will be positioning your company for success in the UK by contacting our experts for advice on the ideal company structure for your particular kind of business.
Do you need help forming a company in the UK? Then Incorpuk will help you achieve this goal. At Incorpuk, we will help you through the company formation process and file your confirmation statements to help your business stay compliant. Whether you're a UK resident or a non-UK resident, our team is ready to provide guidance and help you establish your company in the UK. Contact us here today.